WASHINGTON — The CEO and co-founder the smartphone app-enabled Uber car service has a message for all those shocked by their expensive rides home on New Year’s Eve: Get used to it.
With its app, Uber lets you arrange pick-ups in fancy black sedans. It’s supposed to be more stylish, comfortable and convenient than conventional taxis. The service arrived in D.C. in December and is also available in New York, Chicago and San Francisco.
On New Year’s Eve, Uber instituted a “surge pricing” system that was designed to keep cars available for the customers who really, really wanted them, by raising prices as demand grew.
But prices went higher than expected for some customers. In D.C., Mark Krieger used the Twitter hashtag #happynewtears to describe his surprise $ 200 Uber ride on Saturday night.
Uber’s CEO and co-founder, Travis Kalanick, is unrepentant.
He contends that the surprise cost shouldn’t have been a surprise. Before New Year’s Eve, he blogged about surge pricing, he emailed customers about the pricing as far back as October. And on New Year’s Eve, customers had to click through a screen informing them that their price would be as much as six times the normal price when ordering a ride.
Kalanick has made clear he’s open to suggestions about how to handle pricing, but also put up a blog post on Tuesday reiterating how Uber’s “surge pricing” system works. The post is pretty much an aggravated sounding lesson in economics 101:
Without a surge pricing mechanism, there is no way to clear the market. Fixed or capped pricing, and you have the taxi problem on NYE — no taxis available with people waiting hours to get a ride or left to stagger home through the streets on a long night out. By *raising* the price you *increase* the number of cars on the road and maximize the number of safe convenient rides. Nobody is required to take an Uber, but having a reliable option is what we’re shooting for.
As should come as no surprise, economist-types love Uber. But the company “fails marketing,” according to Venture Beat:
Uber’s blog post does a reasonable job of explaining the economic theory behind its surge pricing, even providing an illustration of supply and demand curves. From the standpoint of economic theory, it makes perfect sense.
But when people feel ripped off, they don’t want to hear about economic theory or the team of Ph.Ds you have developing optimal supply and demand mechanisms.
Most people have a sense of what is “fair”. Study after study has shown that people will make suboptimal economic decisions in the name of fairness. Product and pricing decisions have to take that into account.
The National Review got more academic, linking the Uber kerfuffle to economist and former Libertarian North Carolina gubernatorial candidate Michael Munger’s work on price gouging — Munger believes that anti-gouging laws harm consumers by limiting supply:
This minor dust-up serves as a reminder of the embeddedness of economic transactions. People feel as though Uber was taking advantage of them, despite the fact that the service leapt in to fill the void created by an overregulated taxi marketplace. One is reminded of Michael Munger’s critique of anti-gouging laws and, more broadly, his work on evolutionary exchange.
Relatedly, Munger links to a really thought-provoking essay by the democratic socialist philosopher Michael Walzer on the ethics of competition — it is one of the best critiques of market I’ve ever read, partly because it is so subtle and intelligent. Other critics of the market could learn a thing or two from Walzer. But they probably won’t.
Washingtonian Dave Stroup tweeted a slightly more psychological take: “Yup, I like the service a lot; I’d just hate for NYE to be someone’s 1st experience and have it be confusing, etc.”
Kalanick summed up his own take on the highs and lows of Uber’s New Year’s Eve emotions and prices in his blog post:
The whole experience was at once exhilarating and a bit defeating. We knew to keep cars available, we had to let the price go where it needed to. But the higher the price, the more vulnerable we were to a customer support nightmare. The communications we sent in preparation were out there, (blogs, tweets, emails, etc.), the pricing notification was there, but people are simply not used to paying a lot of money for a reliable ride during a run on cars.
Kalanick told The Huffington Post in an email that he thinks “folks will get used to ‘surge events’ on Uber and it won’t be newsworthy the next time around.”
Flickr photo by Daquella manera,, used under a Creative Commons license.
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Analysts: Greenspan Derivatives Comments Shouldn’t Be Trusted
by admin on March 31, 2011
Former Federal Reserve Chairman Alan Greenspan said the Dodd-Frank financial reform bill had the potential to become the “largest regulatory-induced market distortion” since 1971 in a Wednesday op-ed for the Financial Times, leaving some financial experts astounded.
Greenspan took particular aim at the decision — currently under debate at the Treasury — to regulate the foreign exchange derivatives market. Doing so, Greenspan warned, could cause a large portion of the market to move overseas.
Foreign exchange derivatives are used by financial entities to hedge and make bets on currency exchange rates. According to the Office of the Comptroller of the Currency, trading in foreign-exchange contracts produced more revenue than any other type of derivative in 2010 — yielding $9 billion at the nation’s top five banks.
Proponents of derivatives regulation have argued that foreign exchange derivatives — or forex — should be subject to the same transparency and accountability rules as other derivatives.
“If this market is deregulated, it’s going to be the candidate for blowing the next hole in the economy,” said Michael Greenberger, a former director at the U.S. Commodity Futures Trading Commission. “[Greenspan's] article reads like it’s written from another universe. And it essentially is playing with dice, because it assumes that we are out of all problems: that unemployment is fine, that people’s pensions are in place, that the housing market is stable and that everything is fine.”
Dodd-Frank was intended in part to set regulations in place that will prevent the derivatives market — a notoriously opaque branch of the financial sector — from causing another financial crisis. Whether forex is granted an exemption will likely be determined by Treasury Secretary Timothy Geithner, who has said he will make a decision on the matter in the upcoming weeks.
“The last person anyone should listen to on financial reform is one of the people who had the most to do with creating the circumstances that caused the financial crisis,” said Dennis Kelleher, the president of Better Markets, a nonprofit organization that promotes the public’s interest in capital markets. “Greenspan was a cheerleader for markets-know-best and governments-should-regulate-least. And that has cost the country and the world trillions of dollars, millions of jobs and untold financial losses to American families.”
Walter Dolde, a finance professor at the University of Connecticut and an expert on derivatives, said he agrees with Greenspan that the threat of the forex market moving overseas could be real. He just isn’t as concerned.
“Could some of the players get petulant and pick up their marbles and leave?” asked Dolde. “Yes, they could. Is that a bad thing? I don’t think so. Then they become some other country’s problem.”
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